India’s manufacturing sector faces shortfall in FDI amid rising costs and infrastructure challenges: GTRI report

New Delhi, August 9 (KNN) According to a recent study by the Global Trade Research Initiative (GTRI), the Indian manufacturing sector is struggling to attract foreign direct investment (FDI).

The report reveals that the manufacturing sector accounts for only 30 percent of total foreign direct investment inflows into the country, indicating a significant imbalance in the distribution of foreign capital across sectors.

The study shows that India’s FDI is disproportionately geared towards trade, services, shopping malls and real estate development. This trend has left critical sectors such as electronics and technology underfunded, potentially hampering India’s ambitions to become a global manufacturing hub.

GTRI emphasises that India needs to offer a more competitive cost structure to attract companies that are relocating their operations from China or looking for alternative manufacturing locations.

One of the key challenges identified in the report is the higher cost of raw materials for custom manufacturing in India. This is primarily due to import dependence and high tariffs.

China, on the other hand, benefits from lower costs thanks to large-scale production and efficient supply chains, while Vietnam offers competitive costs thanks to low import tariffs.

Labor costs paint a mixed picture. While skilled labor costs in India are lower than in China, averaging about $2 per hour compared to $3-4 per hour in China, Vietnam has the lowest labor costs, at about $1.50 per hour. This puts India in the middle in terms of labor cost competitiveness.

Industrial energy costs in India are another area of ​​concern. Costs range from $0.08 to $0.10 per kWh, which is higher than $0.06 to $0.08 in China and $0.08 to $0.09 in Vietnam. This higher energy cost increases the overall cost of production for manufacturers in India.

Despite significant investment, India’s infrastructure and logistics still lag behind its competitors in terms of efficiency. China boasts advanced infrastructure and transportation networks, while Vietnam is making significant investments in ports and roads.

This infrastructure gap makes it difficult for India to offer efficient supply chain solutions to potential investors.

Finance costs in India are the highest among the three countries compared in the study. With borrowing rates of around 9-10 percent, India is at a significant disadvantage compared to 4-5 percent in China and 7-8 percent in Vietnam. These higher finance costs can significantly impact the overall cost of doing business in India.

To address these challenges and increase its attractiveness to foreign investors, GTRI recommends several measures. These include inviting leading global companies as base producers, developing effective coordination with major investors, providing production-ready space, ensuring rapid movement from factory to shipping, and ensuring policy predictability while reducing arbitrariness.

The study also highlighted the importance of establishing rapid dispute resolution systems to increase investor confidence.

(KNN Office)